Trademark licensees in New Jersey often depend on an agreement with the trademark holder that allows the licensee to operate significant amounts of a business. The sale and marketing of licensed products can be a major income stream for trademark holders as well as for the licensees who purchased the right to sell those items. However, when a trademark owner files for bankruptcy, it may attempt to reject the trademark license in order to obtain additional funds as part of its bankruptcy reorganization.
However, the U.S. Supreme Court has sided with trademark licensees in a ruling that prevents trademark owners from abandoning their licenses in case of bankruptcy. Specifically, the court ruled that they could not terminate the rights of their licensees simply by repudiating the license during bankruptcy. The court said that rejecting the license is only a breach and does not serve to terminate the licensee’s rights. While a bankrupt company can stop doing additional work under the license, it cannot rescind a license that was already purchased and conveyed by the licensee.
The court rejected the opinion of lower bankruptcy courts, many of which had ruled that since trademarks were not specified as intellectual property in the Bankruptcy Code, licenses could be terminated through rejection in bankruptcy. At the same time, a concurring opinion also emphasized that licensees must continue to uphold their side of the bargain, including paying required royalties. The concurrence also noted that there may be a need for Congressional involvement to create a clear rule for handling the rejection of trademark licenses as part of the bankruptcy process, including the obligations of licensees.
Intellectual property is critical to many businesses, perhaps now more than ever before in today’s era of digital goods and high-powered brands. An intellectual property attorney can help a business to register trademarks and copyrights in order to protect its creative output.